Subject: Re: OT: Car Max (KMX)
It's puzzling who would buy these cars. People that can't finance elsewhere, perhaps?

It's part of the story but not all of it.

About 25% of their customers pay cash or finance elsewhere.

Another 40% of their retail sales are financed in house with CAF. The average credit score is around 700 which is pretty good, but those customers still had an average contract rate of almost 10% last year.

The final 30% fall into their Tier2 and Tier3 categories which appear to be the riskiest in terms of credit. These are all sent out to third party and have no recourse to KMX.

The good thing for KMX is those last two buckets make up ~70% of their sales and don't seem to be very sensitive to interest rate. They are probably people that for whatever personal reasons just need/want a car and don't even think about the interest. Probably the same people carrying credit card balances monthly which is the majority of Americans.

Their yoy sales have been down now for five straight quarters. Annual per store sales are the lowest (outside of covid year) since 2010 and down about 15% from their average ~4k retail units per store. If we assume about 70-75% of their sales are not sensitive to interest rates then we could be close to a bottom here with upcoming Q1 in terms of per store sales. They are executing well by maintaining gross profit per vehicle ~$2,200/$1,000 respectively on the retail and wholesale side which continues to amaze me from an operational standpoint.

I own a few shares I picked up late last year and might add some more. The one thing that bothers me a bit is their lack of share repurchases recently when the stock price was in the 50s. They had been aggressive with buybacks prior 2020 and reduced share count 5-6% in some years. It was disappointing they didn't purchase any shares in Q4. My guess is the steep rise in rates has them spooked and they are conserving cash in case provisions for additional write offs need to be taken. And they also seem to be stuck in 'digital transformation' hell which is never fun.

I think it's reasonable they could be making $7-$8 per share within five years.

Jeff